Newly Passed Defend Trade Secrets Act (DTSA) Requires Employer Action

On May 11, President Obama signed into law the Defend Trade Secrets Act of 2016 (DTSA). While the statute provides, for the first time, a federal statutory cause of action for misappropriation of trade secrets, it also contains significant protections for whistleblowers who turn over trade secrets to government officials in order to report a suspected violation of law. Kellen Myers, an attorney with Detroit-based labor and employment law firm, Nemeth Law, P.C., explains the impact of the new law on employers.

Under the statute, an employee’s disclosure of a trade secret (which would otherwise be an unlawful misappropriation) is protected if it is made:

(i) in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (iii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.

The statute extends immunity to employees not only from actions under the DTSA, but under any state or federal trade secret law.

“While the new whistleblower protection is an important aspect of the DTSA, perhaps more importantly, the DTSA also requires employers to provide notice of the statute’s immunity provision (i.e. a whistleblower notice) to employees,” said Meyers. “While the DTSA does not provide any direct penalties for noncompliance, it provides a punishment of sorts for employers by limiting an employer’s ability to collect exemplary damages or attorney fees in any claim brought against an employee for a trade secret violation under the DTSA if an employer has not provided the notice.”

The immunity notice can be provided in any contract or agreement with an employee that governs the use of a trade secret or other confidential information, for example, through a non-compete agreement, employment contract or employee handbook. Under the immunity provision of the DTSA, the term “employee” includes contractors or consultants for an employer. Thus, the whistleblower notice should also be included in any independent contractor agreements.

“The immunity notice requirement applies to all contracts and agreements that are “entered into or updated” after the date of enactment of the DTSA – which occurred when the President signed it into law on May 11,” Meyers said. “This means employers should immediately have all applicable documents and contracts reviewed by counsel to ensure compliance. Absent this provision, an employer will likely not be able to recover significant damages even if successful in an action under the DTSA.”

Key DTSA action items for employers:

• Employers should immediately contact counsel to review and revise any agreements which address trade secrets and confidentiality to ensure compliance with the whistleblower immunity notice requirements.
• Employers should discuss with counsel how the DTSA may impact their non-compete and independent contractor agreements and determine whether any substantive changes should be made.
• Employers should take this opportunity to evaluate their trade secret policies and practices to determine whether additional protocols should be implemented.

About Nemeth Law, P.C.

Nemeth Law specializes in arbitration, mediation, workplace investigations, employment litigation, traditional labor law and management consultation/training for private and public sector employers. It is the largest woman-owned law firm in Michigan to exclusively represent management in the prevention, resolution and litigation of labor and employment disputes.